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New York Charter Schools Association, Inc. v. DiNapoli

January 15, 2009

IN THE MATTER OF NEW YORK CHARTER SCHOOLS ASSOCIATION, INC., ET AL., RESPONDENTS,
v.
THOMAS P. DINAPOLI, AS COMPTROLLER OF THE STATE OF NEW YORK, ET AL., APPELLANTS.



The opinion of the court was delivered by: Lahtinen, J.

Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.

This opinion is uncorrected and subject to revision before publication in the Official Reports.

Calendar Date: September 9, 2008

Before: Peters, J.P., Rose, Lahtinen, Kane and Kavanagh, JJ.

Appeal from an order and judgment of the Supreme Court (Platkin, J.), entered April 29, 2008 in Albany County, which, among other things, granted petitioners' application, in a combined proceeding pursuant to CPLR article 78 and action for declaratory judgment, seeking a declaration that certain legislation violates NY Constitution, article V, § 1 to the extent that said statutes authorize respondent Comptroller to audit charter schools.

The primary issue before us on appeal is whether legislation directing respondent Comptroller to audit charter schools violated NY Constitution, article V, § 1. Charter schools were authorized by laws enacted in 1998 (see L 1998, ch 4; Education Law art 56), and there were about 100 charter schools operating in the state when this action was commenced*fn1. In 2005, legislation containing the provisions challenged by petitioners was passed and directed the Comptroller to, among other things, audit each public school district, board of cooperative educational services (commonly known as BOCES), and charter school in the state by the end of March 2010 (see L 2005, ch 267; see also Education Law § 2854 [1] [c]; General Municipal Law § 33 [2]).*fn2

The Comptroller contacted various charter schools to schedule audits and, while some went forward with audits, many of the charter schools responded by raising a threshold legal issue regarding the Comptroller's authority to audit them. Although the disagreement initially focused on the scope of the proposed audits (i.e., performance audits versus financial audits), the charter schools eventually took the position that the Comptroller could not consistent with the constitution conduct any audits of them*fn3. Eventually, petitioners a consortium of various charter schools commenced this combined declaratory judgment action and CPLR article 78 proceeding seeking a declaration that the subject legislation violated NY Constitution, article V, § 1 and to permanently enjoin the Comptroller from auditing charter schools.

Respondents moved for summary judgment. Supreme Court denied respondents' motion and determined that, to the extent General Municipal Law § 33 (2) and Education Law § 2854 (1) (c) authorized the Comptroller to audit charter schools, such statutory provisions violated NY Constitution, article V, § 1 (20 Misc 3d 235 [2008]). Supreme Court permanently enjoined the Comptroller from auditing charter schools (id. at 272-273). Respondents appeal.

Respondents argue that the relevant statutes authorizing the disputed audits are supported by three grounds under NY Constitution, article V, § 1: first, that audits of charter schools are incidental to the Comptroller's authority to supervise the accounts of public school districts; second, that charter schools should be characterized as political subdivisions of the state and, as such, are subject to audit by the Comptroller; and, third, that charter school audits are incidental to the Comptroller's authority to audit vouchers before payment and official accounts. They further assert that, if they are correct in their contention that charter schools are political subdivisions, then charter schools lack capacity to maintain a constitutional action against the state (see City of New York v State of New York, 86 NY2d 286, 293-294 [1995]). Finding merit to respondents' argument that charter school audits are incidental to supervising accounts of public school districts, we reverse upon such ground, and the remaining issues are thus academic.

Statutes carry a strong presumption of constitutionality, and judicial interpretations that result in statutes being unconstitutional should be avoided if at all possible (see LaValle v Hayden, 98 NY2d 155, 161 [2002]). Accordingly, a party challenging a statute on constitutional grounds faces a burden of demonstrating such a defect beyond a reasonable doubt (see Dalton v Pataki, 5 NY3d 243, 255 [2005], cert denied 546 US 1032 [2005]; LaValle v Hayden, 98 NY2d at 161). NY Constitution, article V, § 1 provides, in relevant part, as follows:

"The comptroller shall be required: . . . to audit all vouchers before payment and all official accounts . . . In such respect the legislature shall define the powers and duties and may also assign to him or her: . . . supervision of the accounts of any political subdivision of the state . . . The legislature shall assign to him or her no administrative duties, excepting such as may be incidental to the performance of these functions, any other provision of the constitution to the contrary notwithstanding."

This provision is the "wellspring of the Comptroller's authority" and "broadly empowers the Legislature to delegate to the Comptroller both supervision of the accounts of any political subdivision of the [s]tate and administrative duties incidental thereto" (Matter of McCall v Barrios-Paoli, 93 NY2d 99, 105 [1999]). Succinctly stated, "the fundamental duty of the [Comptroller is] to superintend the fiscal concerns of the state" (Blue Cross & Blue Shield of Cent. N.Y. v McCall, 89 NY2d 160, 166 [1996] [internal quotation marks and citations omitted]).

While the Legislature's authority to delegate tasks to the Comptroller is broad, it is not without boundaries since NY Constitution, article V, § 1 "prohibit[s] . . . the Legislature assigning to the Comptroller administrative tasks that are not incidental to [the Comptroller's] duty to superintend the fiscal concerns of the [s]tate" (Matter of Dinallo v DiNapoli, 9 NY3d 94, 103 [2007]). In Dinallo, the Court of Appeals held that it was improper to direct the Comptroller to audit the Liquidation Bureau of the Insurance Department. The Court noted many factors, including that "the liquidation of a distressed insurer has no impact on the state fisc" (id. at 102), and further that "[t]he Bureau does not perform a governmental or proprietary function 'for the state,' but rather runs the day-to-day operations of private businesses in liquidation[,] . . . [it] is not part of the Insurance Department's budget, [and it] operates without the benefit of state funds" (id. at 103). Similarly, in Blue Cross & Blue Shield of Cent. N.Y. v McCall (89 NY2d at 163), legislation assigning the Comptroller to audit private not-for-profit health insurance providers was struck down. The current case has key factual differences from Dinallo and Blue Cross. Two important differences are that this case involves the compelling governmental function of providing public education and directly implicates vast expenditures of taxpayers' money.

"The education of the youth of the [s]tate has always been recognized as one of the principal obligations of an American [s]tate" (Matter of College of City of N.Y. v Hylan, 205 App Div 372, 379 [1923], affd 236 NY 594 [1923]). It is a core governmental function of express constitutional magnitude in this state (see NY Const, art XI, ยง 1; Campaign for Fiscal Equity v State of New York, 100 NY2d 893, 901-902 [2003]; Reform Educ. Fin. Inequities Today [R.E.F.I.T.] v Cuomo, 86 NY2d 279, 283-284 [1995]). Efforts at fulfilling this obligation have historically been made through public school districts. In 1998, the Legislature determined to broaden the options by adding the alternative of charter schools. Charter schools, while operating independently of existing school districts, nevertheless retained characteristics that placed them squarely within the state's public school system. Indeed, among the explicit purposes of the Charter School Act of 1998 was to "[p]rovide parents and students with expanded choices in the types of educational opportunities that are available within the public school system" (Education Law ยง 2850 ...


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